Do big companies dance mostly with big law firms?

Many in the US legal industry probably believe that big law departments mostly hire big law firms. After all, deep pockets face more lawsuits, for more millions of dollars, and on more cutting-edge transactions than do their smaller competitors. Accordingly, they routinely turn to law firms with hundreds, nay thousands, of lawyers.

That myth has a vein of truth, but more slag. The law firms that represent the elite US companies may average hundreds of lawyers, but the median firm – if you rank by number of lawyers all the firms paid by a law department in a given year and pick the middle one it is the median firm – might be well below a hundred lawyers.

Here is where convergence – a policy to restrict the number of law firms retained – crashes into cost. If a law department hires fewer firms, those are inevitably larger firms because they can handle a broader range of specialties and greater volume. Unfortunately, increasing size brings increasing hourly billing rates so the convergence may increase costs. True, the presumed benefit comes from discounts, but rate differentials and hefty annual increases can emasculate puny discounts.

The myth perpetuates because surveys and profiles of law departments ask for the primary firms of the companies. Those firms are usually name-brands because those firms are respected and put the law department in a good light: “We use premium mega-firms.” Unheralded are the schools of smaller firms swimming around the whales.